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Tax Policies for Low-Carbon Technologies

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  • Gilbert E. Metcalf

Abstract

The U.S. tax code provides a number of subsidies for low-carbon technologies. I discuss the difficulties of achieving key policy goals with subsidies as opposed to using taxes to raise the price of pollution-related activities. In particular, subsidies lower the cost of energy (on average) rather than raising it. Thus consumer demand responses work at cross purposes to the goal of reducing emissions (especially as average cost pricing is used for electricity). Second, it is difficult to achieve technology neutrality with subsidies -- here defined as an equal subsidy cost per ton of CO2 avoided. Third, many subsidies are inframarginal. Finally, subsidies often suffer from unintended interactions with other policies. I conclude with some observations on the use of price-based instruments. In particular I discuss how a carbon tax could be designed to achieve environmental goals of emission caps over a control period.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15054.

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Date of creation: Jun 2009
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Publication status: published as Metcalf, Gilbert E., 2009. "Tax Policies for Low-Carbon Technologies," National Tax Journal, National Tax Association, vol. 62(3), pages 519-33, September.
Handle: RePEc:nbr:nberwo:15054

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  1. Holland, Stephen P. & Knittel, Christopher R & Hughes, Jonathan E., 2008. "Greenhouse Gas Reductions under Low Carbon Fuel Standards?," Institute of Transportation Studies, Working Paper Series qt9gh5b4rv, Institute of Transportation Studies, UC Davis.
  2. Gilbert E. Metcalf, 2006. "Federal Tax Policy Towards Energy," Discussion Papers Series, Department of Economics, Tufts University 0612, Department of Economics, Tufts University.
  3. Lucas W. Davis & Matthew E. Kahn, 2008. "International Trade in Used Durable Goods: The Environmental Consequences of NAFTA," NBER Working Papers 14565, National Bureau of Economic Research, Inc.
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Cited by:
  1. Robert Main, 2013. "Subsidizing Non-Polluting Goods vs. Taxing Polluting Goods for Pollution Reduction," Atlantic Economic Journal, International Atlantic Economic Society, vol. 41(4), pages 349-362, December.
  2. Eimear Leahy & Richard Tol, 2012. "Greener homes: an ex-post estimate of the cost of carbon dioxide emission reduction using administrative micro-data from the Republic of Ireland," Environmental Economics and Policy Studies, Society for Environmental Economics and Policy Studies - SEEPS, vol. 14(3), pages 219-239, July.
  3. Balázs Égert, 2011. "France's Environmental Policies: Internalising Global and Local Externalities," OECD Economics Department Working Papers 859, OECD Publishing.
  4. Johnson, Erik Paul, 2014. "The cost of carbon dioxide abatement from state renewable portfolio standards," Resource and Energy Economics, Elsevier, vol. 36(2), pages 332-350.
  5. Aldy, Joseph Edgar, 2011. "A Preliminary Review of the American Recovery and Reinvestment Act’s Clean Energy Package," Scholarly Articles 5688917, Harvard Kennedy School of Government.

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